Corporations

Question 1

Ultra Vires

Answer 1

An ultra vires act is valid, but a shareholder may seek an injunction to prevent the corporation from performing the act.

Question 2

Shareholder Derivative Suit

Answer 2

To bring a derivative suit, a shareholder must have standing: she must have owned shares when the challenged act occurred or acquired them by operation of law (i.e. through inheritance or divorce) from someone who did, and she must fairly and adequately represent the corporation’s interests.

The shareholder must make a written demand on the corporation to bring the suit or take other suitable action.

Question 3

Formation of a Corporation

Answer 3

An incorporator must complete and submit a certificate of formation to the Secretary of State, who will then issue an acknowledgment of filing and the corporation is deemed to exist. The acknowledgement serves as conclusive proof that all conditions precedent for incorporation have been met.

Question 4

Incorporator

Answer 4

A natural person who is at least 18 years old.

Question 5

Organizational Meeting

Answer 5

The initial directors named in the articles must hold an organizational meeting to adopt bylaws, elect directors, and transact other business. Directors can act without a meeting by unanimous consent.

Question 6

Consideration to Purchase Stock

Answer 6

The consideration to purchase stock is fixed by the board of directors. In the absence of fraud, the board’s determination of the value and sufficiency of the consideration received for shares is conclusive.

Question 7

Share Transfer Restriction

Answer 7

A share transfer restriction may be imposed by the articles, the bylaws, or a written shareholder agreement.

Question 8

Right of First Refusal

Answer 8

To be enforceable, a restriction must be reasonable and conspicuously noted on the share certificate. If the restriction is not conspicuous, it is still enforceable against a transferee with actual knowledge.

Question 9

Indemnification

Answer 9

The corporation is permitted to indemnify a director only if the director acted in good faith.

Question 10

Piercing the Corporate Veil (PCV) - Contract Case

Answer 10

A court will PCV in a CONTRACT case only if a corporate creditor demonstrates a shareholder used the corporation to perpetrate an actual fraud on the creditor primarily for the shareholder’s direct personal benefit. Constructive fraud is not enough.

Incorporating to avoid personal liability is not a sufficient basis for PCV.